How Blockchain Solutions Can Transform the Payments Industry

More than eight years have passed since the introduction of
Bitcoin and the promise of “a peer-to-peer electronic cash system.” As of today,
there are around 1,500 cryptocurrencies — a testament to the power people see
in blockchain-based solutions.

Many of the hundreds of cryptocurrencies out there do not focus
on payments at all. Instead, they seek to apply distributed ledger technology
(DLT) to a wide range of industries, all the way from diamond
dealing to cloud storage.

Still, payments remain a key area of competition between the
purveyors of blockchain solutions.

Making Blockchain Solutions Mainstream

While the flexibility and scaling issues of cryptocurrencies are
still being addressed, it appears likely that blockchain-based payment systems
could soon rival our current mainstream payment methods.

Among some of the most interesting scaling solutions currently
being developed is a solution known as “sharding,” which
effectively gives all users their own child blockchain.

Telegram, a company that has raised a total of $1.7 billion so far from its two pre-initial coin offering (ICO) sales,
will adopt this approach. It is becoming increasingly clear that as more
projects move from theoretical constructs toward real-world
application, continuous adjustment will be required in order for
success to be achieved.

In some countries, central banks have received pressure from law
enforcement agencies to remove large denomination notes from circulation due to
their use by criminals for money laundering.

Crypto exchanges have received similar pressure and have
responded by instituting anti-money laundering (AML) and anti-terrorism funding
business processes. However, in the blockchain development area, only recently
have the dangers and benefits of privacy coins that embrace AML been perceived.

Monero’s unique selling point is its increased privacy that
explicitly hides the meta information such as the address a transaction has
been sent from. However, while there is a lot to be said for the protection of
user privacy, the flip side of this is that there is a lot of room for criminal
activity to take place in such a system. Due to this, these kinds of coins will
receive greater attention from regulators and, in some jurisdictions, they may
even be outlawed.

Anonymity is not a required feature of cryptocurrencies.
However, blockchain technology is often described as a “trustless” ledger,
meaning it is not necessarily a requirement for users to know where
transactions were sent from. However, it is becoming clear that such anonymity
could become a barrier to wide-scale adoption in the future if governments
choose to increase regulation.

As a result, a coin that shuns anonymity may actually be favored
among regulators and, thus, more easily accepted by the general public.

Solving Real-World Payment Issues

With these issues in mind, one possible solution could be creating
a way for users to be rated as to how trustworthy they are. This way, both
parties would know each other’s payment record before entering into a
transaction in order to comply with anti-money laundering regulations.

COTI (Currency
of the Internet) is a trust-based online payment ecosystem working to solve
this issue. The platform features a unique mediation system that rates users in
terms of their payment reputation. They use a Proof-of-Stake (PoS) algorithm that
decreases fees for those with a good score. Buyers don’t need to pay anything
to use the platform — only sellers are charged a fee.

The reputation adjustment is handled inside a mediation system
that uses artificial intelligence and human intervention determined by crowd
governance to settle disputes.

The mediation system also addresses another significant issue:
Bitcoin’s immutability feature. While this feature does have many benefits, it
also means that transactions cannot be reversed once they have been made. This
has caused huge problems, as it means that unlike traditional bank payments,
there is no way of getting back money that has been mistakenly sent to
fraudulent third parties.

A mediation system that has the ability to reverse such payments
would greatly simplify the process of dispute resolution
and rectifying fraudulent transactions, and that is a system many
consumers would feel more comfortable using for their purchases.

Similarly, platforms like ZenCash are allowing users to protect their
identities when carrying out transactions. Essentially, ZenCash takes all
of the top security use cases on the market and effectively combines them all
into a single token using three main systems. There’s ZenChat, which enables
encrypted, text-based messaging through a blockchain; ZenPub, a secure content
publishing platform; and ZenHide, a domain fronting feature that protects
both user and crypto data from hostile regulator bans.

Other dispute resolution systems, such as UTRUST, are currently centralized mechanisms,
meaning that they are vulnerable to a single point of failure, and therefore
less secure than solutions built upon blockchain technology.

It will allow the development of deeper trusted relations
between consumers, between consumers and merchants and between issuers and acquirers
in non-payment environments. In addition, if more blockchain projects follow
suit toward AML compliance, it could deliver other adoption advantages.

As it stands, approximately 2 billion people worldwide are not
part of the formal banking system. These people have no way of proving who they
are by recourse to a bank account or their creditworthiness via a credit score
from an agency.

Once development is finished, a community-based mediation setup
such as COTI could potentially provide life-changing benefits to these users.

The long-term benefits of blockchain technology are becoming
increasingly apparent, and this is still just the very beginning. In a few
years’ time, it’s likely that our society will look radically different. Right
now, the playing field remains relatively level. With so much new development
in the space, which could radically change lives, it seems that we are truly on
the cusp of a new technological era.